United States v. New England Tel. Co., CM79-60.

• Decision Date: 28 May 1981
• Docket Number: No. CM79-60.,CM79-60.
• Parties: UNITED STATES of America and James P. John, Special Agent, Internal Revenue Service v. NEW ENGLAND TELEPHONE COMPANY and Jane Cournoyer, Assistant Manager v. Vincent VALLARINO.
• Court: U.S. District Court — District of New Hampshire

530 F. Supp. 274

UNITED STATES of America and James P. John, Special Agent, Internal Revenue Service v. NEW ENGLAND TELEPHONE COMPANY and Jane Cournoyer, Assistant Manager v. Vincent VALLARINO.

No. CM79-60.

United States District Court, D. New Hampshire.

May 28, 1981.

Robert J. Flynn, Boston, Mass., Vincent P. Dunn, Concord, N. H., for defendant.

Robert T. Kennedy, U. S. Atty., Concord, N. H., Robert G. Nath, Washington, D. C., for plaintiff.

ORDER ON MOTION FOR RECONSIDERATION

LOUGHLIN, District Judge.

This is an action to enforce Internal Revenue Service summons pursuant to §§ 7402(b) and 7604(a) of the Internal Revenue Code of 1954, 26 U.S.C. §§ 7402(b), 7604(a).

After Special Agent James John served a summons on New England Telephone Co. requesting certain books, papers and records, etc. pertaining to federal tax liabilities of Vincent Vallarino for 1975, 1976 and 1977, Vincent Vallarino filed a motion for leave to intervene, which Magistrate William H. Barry, Jr., granted on January 2, 1980. Magistrate Barry, later withdrew his order and set the matter for briefing and hearings. On February 26, 1980 Magistrate Barry filed his Report and Recommendation and this court on February 29, 1980 adopted the Magistrate's Recommendation that the taxpayer's motion for leave to intervene be granted. Pursuant to 28 U.S.C. § 636(b)(1) and Rule 60(b) of the Federal Rules of Civil Procedure, the government objected to the Recommendation and petitioned the court for Reconsideration on the grounds that New England Telephone Co. was not a third-party record keeper, as defined by 26 U.S.C. § 7609(a)(3). In its March 24, 1980 order this court granted the motion for reconsideration abrogating its order of February 29, 1980 and declined to hold New England Telephone Co. as a third-party record keeper, citing the opinion of U.S. v. New York Tel. Co., 80-1 U.S.Tax.Cas. ¶ 9460 (E.D.N.Y., Apr. 9, 1980) as authority for its decision. Subsequently, that decision was overturned by the Second Circuit in U.S. v. N.Y. Tel. Co., 644 F.2d 953 (2nd Cir. 1981). New England Telephone Co. petitions the court for reconsideration of its March 24, 1981 order on the basis of that opinion.

The issue before this court is whether the Second Circuit opinion requires the court to reverse its decision of March 24, 1981 denying New England Telephone Co. status as a third-party record keeper.

Section 7609(a)(3) defines third party record keeper as:

(3) Third-party record keeper defined. — For purposes of this sub-section, the term "third-party record keeper" means —

(A) any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institution chartered and supervised as a savings and loan or similar association under Federal or State law, any bank (as defined in section 581), or any credit union (within the meaning of section 501(c)(14)(A));

(B) any consumer reporting agency (as defined under section 603(d) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f));

(C) any person extending credit through the use of credit cards or similar devices;

(D) any broker (as defined in section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4));

(E) any attorney; and

(F) any accountant.

Of the six categories, the only one that can be read as including New England Telephone Co. is § 7609(a)(3)(C). This court based its March 24, 1981 order on a number of factors. Citing the district court decision in U.S. v. N.Y. Telephone Co. the court stated that the mere fact that the telephone company issues credit cards does not change its status to that of a third-party record keeper. This court also rejected the telephone company's argument that its practice of billing in arrears and allowing a telephone user to bill to a third number were analogous to the practices of credit card companies, thus bringing the telephone company under § 7609(a)(3)(C). Finally, this court stressed the fact that the taxpayer, Vincent Vallarino, was never issued a credit card by the telephone company during the period covered by the IRS summons and therefore the summons did not request production of records pertaining to credit card transactions during that period.

The Second Circuit in overturning the district court decision in U.S. v. N.Y. Telephone Co. expressed skepticism about two arguments made by the telephone company to qualify as third-party record keeper, that of billing in arrears and allowing customers to bill to a third number. Instead, the court based its decision on the telephone company's claim to third-party record keeper status because it extended credit through the use of credit cards. However, implicit in the Second Circuit's reasoning is the conclusion that the mere extension of credit cards did not automatically entitle the telephone company to third-party record keeper status. The court describes at length the various practices of New York Telephone Co., in connection with issuing credit cards, that bring it under the third-party record keeper class envisioned by Congress. The telephone company receives applications...